The obsolete stock nobody had provided for

This is a composite, illustrative scenario built from how an obsolescence provision typically gets identified and sized, not an account of a named client. A product line discontinued roughly eighteen months before the year end was still carried in inventory at full standard cost, with no provision against it, even though the client's own inventory ageing report — generated every month — clearly flagged it as having had zero movement for the entire period. The gap was not a missing system or a missing report; the report existed and was accurate. Nobody had connected “discontinued product” to “this line needs a valuation review” as a standing process step.

Why cost alone wasn't the right carrying value

Under the applicable valuation rule, inventory is carried at the lower of cost and net realisable value. Cost was not in question here — the standard cost records were accurate. Net realisable value was the problem: for a discontinued product with no active sales channel, the realistic recoverable amount is whatever a liquidation sale, a scrap value, or a specific buyer would actually pay, which for this line was a fraction of standard cost.

How the provision was actually sized

1. 01Confirmed the product was genuinely discontinued, not just slowChecked with the sales team — the product had been formally withdrawn from the catalogue, not merely selling slowly.
2. 02Asked what recovery route, if any, existedThe client had sold a small batch of the same discontinued stock to a liquidation buyer eight months earlier, at roughly 15% of standard cost. That transaction was the best available evidence of realisable value.
3. 03Checked whether all of the remaining stock could realistically move through the same channelThe liquidation buyer had only taken a portion; the remainder had no committed buyer at any price, which meant a further, more conservative estimate was needed for that balance rather than extending the 15% rate to the whole quantity.
4. 04Built the provision in two layers, not one blended rate15% recovery applied to the quantity with a realistic liquidation route; a near-full write-down applied to the remaining quantity with no identified buyer.

What went into the file

• The ageing report extract, showing the product had shown zero movement for the full period covered.
• Confirmation from the sales team that the product was formally discontinued, with the date.
• The liquidation sale evidence used as the basis for the 15% recovery rate on the layer with a realistic route to market.
• The two-layer calculation, kept separate rather than blended into a single average rate across all remaining quantity.
• A management letter point recommending discontinued products be flagged for an automatic valuation review the month they're withdrawn, rather than relying on the ageing report being separately acted on.